The Obama administration may have acted hastily in demanding that General Motors Co and Chrysler accelerate the closing of dealerships to ensure their viability, a government watchdog found on Sunday.
A report by the watchdog, the special inspector general for the U.S. Treasury's corporate bailout program, said the task force established to oversee the automakers' restructuring did not sufficiently consider the impact of accelerated dealer closings on job losses.
GM was not always consistent in its approach to determining which franchises to terminate, the report also said.
The automakers' decisions in 2009, which initially affected more than 2,400 GM and Chrysler showrooms, were so controversial that Congress, under pressure from the politically potent dealer lobby, forced the automakers to arbitrate appeals.
As a result, steps have been taken this year to potentially reverse a third of planned closures -- mainly at GM -- with more judgments possible.
Within the task force, there was disagreement over where and how quickly to close the dealerships, the report said.
Initial plans to gradually close 1,600 GM dealerships and 789 at Chrysler over several years were rejected by the task force on grounds the companies needed to be more aggressive in their restructuring to ensure continued government support.
GM and Chrysler, whose bankruptcies in 2009 were facilitated by the task force, received more than $80 billion in bailout and restructuring assistance.
Internal task force memos -- reviewed by Neil Barofsky, the special inspector general for the Troubled Asset Relief Program -- showed that members of the task force "knew there might be difficulties" with accelerating dealership closings, the report said.
But to benefit taxpayers and in the interest of the automakers becoming viable as soon as possible, they wanted the companies to take full advantage of unique laws in expedited bankruptcy to "reject dealership franchise agreements without significant upfront costs."
Barofsky's central criticism of the task force, run by Steve Rattner and Ron Bloom, was that it did not fully weigh the impact that dealer closings would have on job losses.
In one task force memo, GM estimated that short-term job losses could total 43,000, while the task force assumed Chrysler, which at the time did not have a suitor deemed essential for its survival, would probably go out of business with a loss of 72,000 jobs.
Barofsky concluded that the task force's decision conflicted with the administration's multibillion dollar effort to create employment through economic stimulus programs.
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